How to use third parties when starting a business

How to use third parties when starting a business

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Overview

The challenge

Most of the cost of starting a business comes from the fees of third-party professionals such as lawyers and notaries. The requirement to use notaries and lawyers varies from country to country, region to region. Many governments have moved the process online to try and cut costs to start-ups. This guide shows the many options available to you, wherever you are starting your business.

Your aim

Knowing which countries and regions require notaries is a good way to keep business costs down while still remaining compliant.

Third party costs, and benefits

Notaries and lawyers are the third-party professionals most businesses use when setting up. They help smooth out what can be complex procedures, and ensure companies remain compliant. They can, however, be costly depending on where your business is located.

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Notaries and small businesses

Notaries are public officers appointed by government and public agencies to certify documents, thus making them official. Their role is to be impartial. The powers that notaries have vary from country to country, and sometimes region to region.

For example, in Italy notaries are the only authority able to authenticate property transactions, and have the authority to execute public deeds of incorporation.1

The World Bank Doing Business report states that small business start-ups use notary services in 76 of their listed 189 economies worldwide, and 40 of these 79 economies legally require start-ups to do so.

The costs of using a notary

Notarisation can be costly. People setting up businesses can incur notary fees which account for 5.6% of income per capita. These rates are highest in OECD high-income economies, followed by Latin America and the Caribbean. In some economies such as Costa Rica2, notary fees for business registration are fixed by regulation. In others, notary fees are negotiated on the basis of the services they provide.

Small businesses in the Organisation for Economic and Co-operation and Development (OECD) high-income economies widely use notaries when setting up their business.

For example, in Italy, Poland, and the Netherlands a company’s public deed of incorporation and bylaws are often executed before a notary.

Regions where notaries are required in legal transactions, including creating legal entities, the transfer of land and the verification of legal documents are:

Africa

Latin America

The Caribbean

Africa

In 2014 the Council of Ministers of the Organisation for the Harmonisation of Business Law in Africa (OHADA) made the use of notary services in business start-ups optional in the 17 OHADA member states, although notarisation still exists in many OHADA countries.

For example, in Burkina Faso a notary certifies the declaration of start-up capital subscriptions.

The 17 OHADA countries are:

Benin

Burkina Faso

Cameroon

Central African Republic

Chad

Comoros

Côte d'Ivoire

Democratic Republic of Congo

Equatorial Guinea

Gabon

Guinea

Guinea-Bissau

Mali

Niger

Republic of the Congo

Senegal

Togo

Latin America

In Latin American economies notary practices currently vary. For example, in Argentina a company isn’t obliged to have its bylaws notarised

In Guatemala company founders must present a letter from a notary to open a bank account.

Electronic systems

The notary profession has seen significant advances with the introduction of electronic systems in some high-income economies.

For example, in Belgium, the e-notariat system lets notaries file a company’s deed of incorporation electronically with different institutions and obtain its enterprise number within minutes. In Croatia, notaries can use an electronic system to submit documents to courts.

Notary laws, country to country

Across Europe and Central Asia, approximately one-third of economies include notary services in business formalisation.

For example, in Bosnia and Herzegovina, the 2002 Law on Notary requires that all documents needed for registering a company be prepared and certified by a notary. In Turkey, a company’s legal accounting books must be certified by a notary. In Kazakhstan, the certificate of state registration must be authenticated by a notary.

In Costa Rica the fee structure established by Executive Order 36562-JP of January 31, 2011 (section 95 a), fixes the fee for notarising articles of association at 150,000 colones ($288) for any corporation, though notaries may negotiate other fees. ↩

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Lawyers and small businesses

Many small businesses hire a lawyer to:

Prepare and draft articles

Prepare and draft memorandums of association

Sign company documents

Prepare company statutes

Conduct name searches

Draft company deeds

Using legal services to register your company can add to the expenses associated with starting a business. The expenses of legal services can be more than using a notary service. The World Bank Doing Business report states that approximately 17 economies have laws requiring the use of legal services in company registration.

e.g. in The Bahamas, a lawyer must prepare a company’s registration documents.

When to use legal services

If your start-up process is going to be complex and involve many bureaucratic hurdles, you should consider using professional legal services. Hiring a lawyer may be expensive, but it can save time and help ensure that the process goes smoothly.

Start-up businesses still seek legal advice even in countries where it isn’t legally required. This is to ensure that the business registration process goes smoothly, as this can be a complicated process.

Examples of legal services provided in different countries, provided by Doing Business data:

República Bolivariana de Venezuela requires lawyers to provide a legal assessment when preparing a company’s incorporation documents. This can take five days and costs more than 87% of income per capita.

St.Lucia requires lawyers to conduct a company name search and to give approval for the proposed name. Once the Commercial Registry guarantees the approval of the company name, an attorney prepares incorporation documents, which takes two days and costs 18% of income per capita.

Latin America and the Caribbean have the largest share of economies where start-up business hire lawyers for company registration.

Antigua and Barbuda requires owners of a new company to have a lawyer provide a declaration stating that the owners are not bankrupt, are mentally sound, and over 18 years old. Start-up owners must also have a lawyer prepare all the incorporation documents, including the notice of address and the articles of incorporation.

Ecuador requires that people starting a new company hire a lawyer to prepare the minutes of incorporation.

Bolivia requires start-up owners to engage a lawyer to prepare the articles of incorporation, bylaws, and constitution acts. The fee schedule set by the Bolivian lawyers association sets out a minimum fee for company incorporation which is approximately 42% of income per capita, plus 2% of the company’s capital.

Countries which don’t use legal services

In Sub-Saharan Africa legal services are rarely used in the company incorporation process, although the practice is most common in South Sudan, Swaziland, and Uganda.

Several other countries in Sub-Saharan Africa recently implemented reforms which eliminated the need to use legal services when forming a company.

For example, in 2009 Liberia introduced standard forms for articles of incorporation, making them available at several government offices in Monrovia. These let start-up business owners register their business without a lawyer.

In 2009 the South African government stated start-up businesses no longer had to submit documents through a lawyer.

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The cost of legal services

In OECD high-income economies the average notary fees for a start-up business are almost four times the average legal fees.

Even though the cost of using incorporation lawyers is high, the benefit is that once a lawyer is hired, incorporating a business usually does not take long.

Globally on average, procedures that involve the use of a lawyer’s services take only two days to complete, while those involving a notary’s services take more than twice as long.

Europe and Central Asia have the second highest average cost of lawyers’ services in company registration.

A few examples of the cost of lawyers’ services globally:

Cyprus has a statutory requirement to have a lawyer prepare the memorandum and articles of association, which costs a small or medium-size company about £1,000.

In Hungary a start-up has to first hire a lawyer to represent the company, create the company deed, and prepare all the other founding documents. The use of a lawyer is required through the registration process. The cost varies depending on the complexity of the case, and can be almost 7% of income per capita.

On average, it costs a business 18% of income per capita to hire a lawyer to assist in its start-up, more than the average cost incurred for notary services.

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Reforms and good practices

How third parties can be involved in your business start-up.

Using the services of third parties in a business start-up is a common and established practice. However, third parties can be time consuming and costly. This is why governments in several countries have made the use of third-party services optional.

For example Burundi enacted a law in 2011 that eliminated the need to have articles of association notarised. This reduced the cost of registering a business by 21% and the time by four days.

The benefits of online incorporation systems

Some governments have encouraged the use of online registration platforms to reduce the costs associated with third-party services. These online systems usually don’t need the involvement of lawyers or notaries as intermediaries to authenticate company documents and complete the registration process. These platforms may also enable digital forms of identification such as electronic signatures, which replace some of a notary’s roles.

For example, Germany1 made electronic registration compulsory in all its states and allowed online publication of incorporation notices, reducing start-up time by six days.

In 2013 the Chilean government simplified starting a business by allowing entrepreneurs to register certain types of legal entities online free of charge. This change reduced the time it took to have company statutes registered by notaries from two days to one.

Final takeaway

Using legal services and notaries offers the peace of mind that compliance brings. Be aware from the outset that these services will add up, and factor this into your start-up costs. It is worth considering using electronic registration processes, if this is permitted, to reduce costs.

In Germany electronic registration and publication were enabled by the Act on the Maintenance of Electronic Commercial Registers, Cooperative Registers and the Companies Register, effective January 1, 2007. ↩